Income Verification for Mortgage Loan

Verification of employment and income will be made through the review of the borrower’s ability to repay the loan and is used in the debt-to-income ratio. There are three types of employment income and one additional (other) income;

Salary, Self-Employed, Commission, and Other Income

• Determine if pay is hourly, weekly, monthly, semi-monthly or every two weeks.
• If paid hourly, multiply the hourly rate by the number of hours per week, then multiply by 52, then divide by 12.
• If paid weekly, multiply base pay by 52, then divide by 12.
• If paid semi-monthly, multiply base pay by two.
• If paid every two weeks, multiply base pay by 26, then divide by 12.

Documents Requirements

There are three (3) documentation types; Full, Lite, and Stated to demonstrate income. These are designed to meet the needs of a broad array of customers. Additional documentation should be represented in those. There are three (3) documentation types; Full, Lite, and Stated to demonstrate income. These are designed to meet the needs of a broad array of customers. Additional documentation should be represented in those cases where the required items do not give the underwriter sufficient comfort with type of document type level. If satisfactory documentation is not received, the loan may not be a candidate for the requested document type. Requirements for

Full Documentation

• A & B Credit
• VOE
• Two years W2's or Tax Returns
• Current Pay stub within 30 days of Closing
• Verbal VOE at Closing

Lite Documents

• A & B Credit
• Fully Completed, Signed (FNMA 1003) Application
• Six months - personal bank statements, as needed to substantiate income reported on the signed application.
• Verification of two month PITI liquid reserves.
• Verbal VOE at Closing

Stated Income

• A & B Credit
• Fully Completed, Signed (FNMA 1003) Application
• Income must be reasonable for profession, assets and type/length of employment
• Verbal VOE at Closing
• First lien position only

Self-Employed Individuals

• Self-employed must be in the same line of work at a minimum of two (2) years. Self-employed individuals are those who:
• Has 25% or greater ownership interest or
• Is a General partner in a corporation, partnership, limited partnership
• Receive 25% or more income from commissions
• Work as independent contractors
• 25% of income derived from partnerships).

Calculations

Self-employed income may fluctuate from year to year. Averaging these sources of income is advised, unless a declining income trend is apparent. Then, the lesser figure must be used. Calculations and reasoning should always be documented .

Documents Requirements

There are three (3) documentation types; Full, Lite, and Stated to demonstrate income. These are designed to meet the needs of a broad array of customers. Additional documentation should be represented in those case where the required items do not give the underwriter sufficient comfort with type of document type level. If satisfactory documentation is not received, the loan may not be a candidate for the requested document type. Requirements for:

Full Documentation

Sole Proprietorship

• A & B Credit
• Copy of the last two years signed 1040's, including all schedules.
• Copy of Profit and Loss statement indicating year-to-date cash flow.
• Copy of Current Balance sheet (on a case by case basis, asset and liability information from application may be sufficient.

Sub-Chapter Corporation

• A & B Credit
• Copy of last two years signed 1040's with all schedules, including K-1's.
• Copy of the last two years signed 1120S Corporation Tax Returns (only required if shareholder interest is 25% or more).
• Copy of Profit and Loss Statement indicating year-to-date cash flow (only required if shareholder interest is 25% or more).
• Current Balance Sheet

Corporation

• A & B Credit
• Copy of the last two years signed 1040's, including all schedules.
• Copy of the last two years signed 1120 Corporation Tax Returns, including all schedules.
• Copy of Profit and Loss Statement indicating year-to-date cash flow.
• Current Balance Sheet

Limited Partnership

• A & B Credit
• Copy of the last two years signed 1040's, including all schedules.
• Schedule K-1, Partners Share of Income for each partnership.
• General Partnership
• A & B Credit
• Copy of last two years signed 1040's with all schedules, including K-1's.
• Copy of last two years signed 1065's (if a General Partner with 25% of more interest).
• Copy of Profit and Loss Statement indicating year-to-date cash flow.
• Current Balance Sheet

Lite Documents

• A & B Credit
• FICO score of at least 620
• Fully completed, signed FNMA 1003 application form including asset information
• Twelve months – business bank statements or personal bank statements, or both as needed to substantiate income reported on the signed FNMA 1003 application form.
• Proof of ownership of business
• Business license or Advertisement with documented phone verification
• Bank statement
• CPA Letter

Additional Requirements

Income must be reasonable for business, assets and type as evidenced by personal and bank statements. Major personal expenses (mortgage, auto, etc.) must show as withdrawals from one account.)

• Two years in business

Stated Income

• A & B Credit
• FICO score of at least 620
• Fully completed, signed FNMA 1003 application form including asset information.
• Proof of ownership of business
• Business license or Advertisement with documented phone verification
• CPA Letter

Commissioned Individual

• Commissioned Individual must be in the same line of work for a minimum of two (2) years.

Calculations

Self-employed income may fluctuate from year to year. Averaging these sources of income is advised, unless a declining income trend is apparent. Then, the lesser figure must be used. Calculations and reasoning should always be documented.

Documents Requirements

There are three (3) documentation types; Full, Lite, and Stated to demonstrate income. These are designed to meet the needs of a broad array of customers. Additional documentation should be represented in those case where the required items do not give the underwriter sufficient comfort with type of document type level. If satisfactory documentation is not received, the loan may not be a candidate for the requested document type. Requirements for:

Full Documentations

Commissioned

• Copy of last two years signed 1040's including all schedules.
• Copy of last two years W2's / 1099's
• Copy of most recent paystub with year-to-date earnings.
• IRS Form 4506

Lite Documents

• A & B Credit
• FICO score of at least 620
• Fully completed, signed FNMA 1003 application form including asset information
• Twelve months – business bank statements or personal bank statements, or both as needed to substantiate income reported on the signed FNMA 1003 application form.
• Advertisement with documented phone verification
• Bank statement
• CPA Letter

Stated Income

• A & B Credit
• FICO score of at least 620
• Fully completed, signed FNMA 1003 application from including asset information
• Verbal VOE of current employment
• 1 year with 1 year same line of work
• Trade reference letter, or CPA letter
• First Lien position only
• Purchase Money Only – verification of two months PITI liquid reserves

Other Income

Additional income sources, other than primary employment or business income, must be verified in an appropriate manner as to past receipt and the likelihood of continuance for at least two years. There will be a six month history required on any additional income used for qualification purposes. These sources include, but are not limited to:

• Overtime, Bonus, and Commission Income
• Fixed Income such as Social Security, VA Benefits, Pension, Disability Benefits, Annuity, Etc.
• Part-Time / Second Job Income
• Rental Income
• Dividend / Interest Income
• Alimony / Child Support / Separate Maintenance (must document last 6 months and must continue for least another 2 years).
• Notes Receivable (must document last 6 months and must continue for least another 2 years).
• Trust Income

Trailing Spouse Income (Approved on a case-by-case basis)

• 80.01% - 90% = 35% of trailing spouse income
• 70.01% - 80% = 50% of trailing spouse income
• 60.01% - 70% = 75% of trailing spouse income
• 60% = 90% of trailing spouse income

Property must be a single-family principal residence with no secondary financing.

The dollar amount of the trailing spouse income cannot represent more than 40% of the total qualifying income.

Borrower must be relocating with the same company.

The spouse must have had two years continuous prior employment in the same profession which must be documented with a verification of employment form.

The borrowers must have a least six months liquid reserves for PITI.

The trailing spouse must state in writing the intent to obtain employment in the new location.

Newspaper clippings must be provided to prove that the employment opportunities in the new location are at least equal to those in the current location.

Rental Income

Copy of current rental or least agreements must be provided. The rental property must be currently occupied by renter to include as income. Rental income from a borrower’s single family primary or secondary residence cannot be included.

Calculation

The preferred method of calculating rental income is to use the IRS Schedule E bottom line income plus depreciation plus interest minus all mortgage payments. If mortgage payment includes principal, interest, taxes, and insurance then tax and insurance deductions can be added back.

Another way for calculating rental income is to see the current lease amount, subtracting principal, interest, taxes, insurance and 25% for vacancy and maintenance. Treat a positive result as income, a negative as debt.